December 04, 2006

Winners of the Forbes China 400 List have been easy targets for accounting fraud charges.

Zhou Yiming, China's youngest Forbes 400 winner, was sentenced to life in prison for accounting fraud. Forbes listed Zhou as being worth $121 million in its 2005 list of China's richest people. He was number 207 on the list of 400. Zhou gained most of his wealth through his stake in Sichuan Mingxing Electric, a major supplier of water, electricity and gas to 3.8 million residents in Suining.

How did he do it?

In 2003, Zhou paid 110,000 yuan (US$13,900) to Shenzhen Zhongxi Accounting Company to help him forge an audit of his personal finances. The fake reports inflated Shenzhen Minglun Group's net assets in 2002 to 1.2 billion yuan (US$152 million), although the company had actually been in debt to the tune of 280 million yuan (US$35 million) at the time.

Zhou used the fake reports to borrow 380 million yuan (US$48 million) from three banks, which he then used to acquire the 28 per cent stake in Sichuan Mingxing Electricity.

The court held that Zhou began to siphon capital from the Sichuan company after he gained control, acquiring nearly US$69 million with the help of several accomplices and causing the company to suffer huge financial losses.